Gold Hits New Highs: Hedge Funds’ Biggest Bet in Years Points to Possible Fed Rate Cut

Hedge funds and other major speculative investors have reached their largest net long position in gold in four years, reflecting growing confidence in a potential interest rate cut by the U.S. Federal Reserve.

Data from U.S. government sources and other reports show that, as of August 20, these investors held a net long position in gold amounting to 236,749 contracts. This represents a 7.8% increase from the previous week and the highest level since early 2020.

This surge in net long positions suggests that hedge funds and speculative investors are increasingly betting on the price of gold.

Gold prices are also on the rise. On December 20, gold futures traded at $2,550.60 per ounce on the New York Mercantile Exchange (COMEX). Gold futures first surpassed $2,500 on the 12th, closing at $2,504, and have continued to climb for three consecutive trading days, reaching new record highs.

As gold prices soar, investor demand is also surging. This month, individual investors have made net purchases of $1.1 million and $520,000 in KODEX Gold Futures and TIGER Gold Futures ETFs, which have jumped 2.11% and 1.94% over the past week, respectively.

Interest in physical gold has also increased. This month, individual investors have net purchased $12 million in the ACE KRX Gold Spot ETF, continuing a net buying streak.

Trading volume for physical gold has also surged significantly. In the Korean Exchange gold market this month, the daily trading volume for 1 kilogram of gold reached 116,635 grams, a 47% increase from the previous month’s 79,323 grams. The average daily trading value rose by over 49% to 12.7 billion KRW (9.5 million USD) during the same period.

Analysts attribute this trend to expectations for a Fed rate cut. The market anticipates the Fed will start lowering rates in September, with increasing speculation about a significant cut (a 0.5 percentage point reduction at once).

Citigroup analysts predict that gold investment sentiment will rise over the next 3 to 6 months. They expect gold to reach $3,000 per ounce by mid-2025, with an average price of $2,550 per ounce in the fourth quarter of this year.

UBS Global Wealth Management’s Wayne Gordon highlighted factors such as the Fed’s shifting stance, central bank purchases, and portfolio hedge demand. He believes gold prices will likely approach $2,700 per ounce by mid-2025.